Portfolio limits, affordable housing fund potential Senate roadblocks

Wednesday, May 23, 2007

Inman News

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Copyright 2007 Inman News

 

The House of Representatives passed legislation Tuesday that would strengthen oversight of Fannie Mae and Freddie Mac, but some provisions of the bill are expected to be the subject of further Senate debate.

Approved by the House in a 313-104 vote, the Federal Housing Finance Reform Act of 2007 would create a new federal regulator for Fannie and Freddie, the Federal Housing Finance Agency.

Bush administration officials want the FHFA to have the power to limit Fannie and Freddie's loan portfolios if they are determined to pose a "systemic risk" to the U.S. banking and financial system. The FHFA was to have the ability to make such a determination under compromise language worked out by Rep. Barney Frank, D-Mass., and the Treasury Department.

But HR 1427 was amended to give the FHFA less leeway to limit the government-sponsored entities' (GSEs) loan portfolios. Although the amendment would allow the FHFA to limit the GSEs' holdings, it could do so only if it determined a risk to the companies themselves, allowing for larger portfolios.

That's a sore point with some Republicans. Others are also opposed to a provision of the house bill that would set aside about $500 million a year for an affordable-housing fund to be funded by Fannie and Freddie.

Passage of HR 1427 was acknowledged in a statement by the Treasury Department as "progress" on GSE reform, which said the bill in its present form does not "adequately (guard) our financial system with the necessary oversight."

The House bill "significantly weakened" FHFA's ability to examine systemic risk issues, said Treasury Under Secretary Robert Steel in a prepared statement. The Treasury Department is "troubled" by other provisions, including "some aspects of the affordable-housing fund," provisions related to conforming loan limits, and a proposal to increase the number of presidential appointees to the GSEs' board of directors from three to five.

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Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.

Federal regulators drafting new guidance for subprime lending

Tuesday, May 22, 2007

Inman News

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Copyright 2007 Inman News

 

Federal regulators should expedite the process of issuing new guidelines for subprime mortgage lending and reject any industry attempts to water them down, members of the influential Senate Banking Committee say.

But a group of six industry trade associations warns that overly restrictive policies would shut some worthy borrowers out of the home-buying market.

In a statement issued Monday, industry groups -- including the American Bankers Association, the Mortgage Bankers Association and the Housing Policy Council -- said any new regulations, including forthcoming federal guidelines on subprime lending, must strike "a careful balance that provides enhanced consumer protections without unintentionally limiting the availability of home ownership to creditworthy borrowers."

From the industry's perspective, one problem with the proposed guidelines is that they will apply only to federally chartered banks and savings and loans, unless states choose to adopt them on a case-by-case basis.

The proposed guidelines for subprime loans are based on instructions issued by regulators last fall for nontraditional, or "exotic," loans, such as interest-only and pay-option adjustable-rate mortgages. The guidelines direct lenders to evaluate a borrowers' ability to repay a loan at the "fully indexed" rate and provide borrowers with more complete disclosures of loan terms.

Countrywide Financial Corp. CEO Angelo Mozilo on Monday railed against the guidelines for nontraditional loans, saying they "really put a dent" in the use of "a perfectly good product," Reuters reported.

Although 33 states have implemented the guidelines for exotic mortgages, the remainder have yet to take such action. The lending industry statement released Monday urges lawmakers to "establish a single uniform national standard that will provide consistent protections to consumers in all 50 states and U.S. territories."

The March 2 proposal by federal regulators to extend the guidelines for nontraditional mortgages to all subprime loans followed prodding by members of the Senate Banking Committee. In a May 17 letter to regulators, five members of the committee urged that the guidelines be finalized quickly, without scaling back their proposed scope.

In the letter, Committee Chairman Sen. Chris Dodd, D-Mass., and his colleagues said that if lenders are complaining that extending the guidelines for exotic mortgages to all subprime loans would prevent some borrowers from refinancing, that's an admission that the original loan was inappropriate.

"It stretches credulity to argue that the path out of one poorly underwritten loan is another unaffordable loan underwritten on the same faulty basis," the letter said.

The letter's recipients included Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairwoman Sheila Bair, and Comptroller of the Currency John C. Dugan.

In one of his most extensive speeches on subprime lending to date, Bernanke said last week that market forces should play the largest role in guiding lending practices. When government intervention is required, guidelines are preferable to rules, Bernanke said.

Bair recently told members of the House Subcommittee on Financial Institutions and Consumer Credit that she favored a national predatory lending standard that would require underwriting based on the borrower's ability to repay the true cost of the loan instead of payments based on a teaser rate.

In their statement on subprime lending, industry groups agreed that lenders should only make subprime home loans to consumers whom they "reasonably believe" have the ability to repay, based on information available at the time the loan is made.

"Our trade associations believe that all mortgage lenders should embrace responsible subprime lending principles," the statement said. "We support the efforts by industry and the federal banking regulatory agencies to strengthen underwriting standards and to protect borrowers against unfair and deceptive mortgage lending practices."

However, the groups said, many lenders have already tightened subprime lending standards, and introduced programs to assist troubled borrowers that offer loan refinancing, restructuring, forbearance and rescue funds.

This month, a number of lenders and industry groups endorsed a set of voluntary principles for conducting such "workouts" with borrowers, which were drafted by the Senate Banking Committee.

Current proposals for stronger legislation governing mortgage lending include a proposal by Sen. Charles Schumer, D-N.Y., to extend federal enforcement of the Truth in Lending Act to all mortgage brokers and non-bank loan originators.

Schumer's bill, the Borrower's Protection Act of 2007, would impose suitability standards for assessing a borrower's ability to repay a mortgage, and hold lenders accountable for the actions of brokers and appraisers.

Schumer's bill would establish a fiduciary duty for mortgage brokers and originators and create a "faith and fair dealing" standard for all originators. SB 1299 would require originators to underwrite loans at the fully indexed rate and create escrow accounts for subprime loans to pay taxes and insurance.

The legislation would also prohibit "steering," or counseling borrowers to accept unsuitable rates, charges and principal amount or prepayment terms.

Another bill, the Predatory Mortgage Lending Practices Reduction Act, HR 2061, would amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to require that mortgage brokers who offer subprime "federally related" mortgages be certified by the U.S. Department of Housing and Urban Development.

The bill, introduced by Rep. Stephanie Tubbs Jones, D-Ohio, defines subprime loans as those with characteristics including higher fees or penalties, interest rates, debt-to-income or loan-to-value ratios, taken out by borrowers with a history of loan delinquency, lower credit scores, recent bankruptcy or lack of credit history.

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Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.

Pacific Northwest, Rocky Mountain prices climbing

Tuesday, May 22, 2007

By Glenn Roberts Jr.
Inman News

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Copyright 2007 Inman News

 

While home prices lulled in many regions across the country during the descent from a prolonged real estate Gold Rush, rapid appreciation has continued in major Pacific Northwest and Rocky Mountain markets.

The U.S. Office of Federal Housing Enterprise Oversight, a federal agency that monitors government-sponsored enterprises Fannie Mae and Freddie Mac, reported that Utah, Wyoming, Idaho, Washington and Oregon had the steepest home-price appreciation in fourth-quarter 2006 compared to fourth-quarter 2005.

In fourth-quarter 2006, the top five metro areas for year-over-year price appreciation on OFHEO's list were in Oregon, Washington, Utah and Idaho, while the sharpest metro-area price declines were in Indiana, California and Michigan. OFHEO's first-quarter-index report is due out later this month.

Median resale home prices in the state of Washington rose about 9.3 percent in the fourth-quarter of 2006 compared to the same quarter in 2005, and in 2006 the statewide median price was 12.6 percent higher than in 2005, the Washington Center for Real Estate Research at Washington State University reported. The median price in King County -- home to Seattle -- rose 13.6 percent in fourth-quarter 2006 compared to fourth-quarter 2005.

The National Association of Realtors reported that the median sales price of resale homes in the Seattle metro area rose 12.3 percent in first-quarter 2007 compared to first-quarter 2006, and climbed 11.3 percent in fourth-quarter 2006 compared to fourth-quarter 2005.

Seattle and Portland were among the strongest markets in fourth-quarter 2006 for home-price appreciation among 20 U.S. markets featured in the monthly Standard & Poor's/Case-Shiller Home Price Index.

Glenn Crellin, director for the Washington Center for Real Estate Research at Washington State University, Pullman, said job and income growth have been strong throughout Washington and especially in the Seattle area. "That's clearly one of the things that is contributing to the strength of the market," he said.

Also, he said, "Because of the depth and the length of the previous recession, the Seattle area really started its recovery much later than some of the other places around the country. We are at a different point in the cycle than many of those previously high-flying markets have been."

Growth management policies in the state have kept speculative building in check, he said, and this has prevented a massive over-supply of units on the market. "We certainly haven't seen the degree of inventory accumulation that some of the markets such as Vegas or Phoenix have seen. Realtors are still talking about many instances of multiple offers coming in."

Large national builders are not as active in the Seattle area as they are in other markets, Crellin said, and the subdivisions tend to be small-scale.

While price growth has been slowing, it is still strong -- this year will be a good year, he said, though 2006 was not as strong as 2005, "and I think 2007 is not going to be as good as 2006." Single-family home sales fell 12 percent in 2006 compared to 2005, and affordability is a growing problem.

"First-time buyers are in very dire straights," Crellin said. "Affordability has declined sharply, as it has virtually every place. Still, by comparison to California markets, Washington housing still looks relatively affordable."

Traffic in the region has been impacted by the "drive-until-you-qualify" commuters, he said, as prices toward the job centers have pushed some buyers to the suburbs and beyond in search of affordable housing.

Brian J. Kreick, broker-owner for Kreick Realty Group in Lynnwood, Wash., which is north of Seattle, said the booming high-tech industry has definitely buoyed the real estate market. While the for-sale inventory and time on market is rising, Kreick said it takes perhaps four to eight weeks to sell a property these days -- which is still a healthy market.

Nationwide, the median price of resale homes fell about 2.7 percent in fourth-quarter 2006 compared to fourth-quarter 2005, the National Association of Realtors reported, while the Census Bureau reported that the median new-home price dropped about 2 percent.

NAR reported that the Cumberland, Md.-W.V., metro area had the strongest price appreciation in the first quarter compared to first-quarter 2006, followed by Beaumont-Port Arthur, Texas; Gulfport-Biloxi, Miss.; Salem, Ore.; and Bismarck, N.D. Other markets that were on the top-10 list for price appreciation were in New Mexico, Utah, Washington, Oklahoma and New Mexico. Salt Lake City and Salem, Ore., were in the top five for price appreciation in NAR's fourth-quarter report, and markets in New Jersey and Texas also topped the list.

Markets with the biggest year-over-year median-price declines in the first quarter included Elmira, N.Y.; Sarasota-Bradenton-Venice, Fla.; New Orleans-Metairie-Kenner, La.; Reno-Sparks, Nev.; Palm Bay-Melbourne-Titusville, Fla.; and Green Bay, Wis., NAR reported. And the five metro areas with the most severe price drops in fourth-quarter 2006 were in Florida, Illinois and Louisiana.

Among the 20 markets tracked in an S&P/Case Shiller price index, Detroit, Boston, San Diego, Cleveland and Washington, D.C., experienced price declines in fourth-quarter 2006.

John A. Keith, a real estate broker in Boston, said that while some statistics show price declines in Boston, he believes the downtown market is strengthening and that prices have begun to stabilize.

"I feel there is more activity now. The volume I think has improved and prices have stabilized. People are pricing close to what properties are worth," he said. Also, inventory has shrunk and there is a low inventory of properties for entry-level buyers. It's difficult, he said, to find a one-bedroom unit for less than $500,000 in downtown Boston.

The first quarter of the year was busier for him than fourth-quarter 2006, Keith said. And while some consumers are waiting to see if Boston prices will drop further, he said he doesn't expect to see any major swings in price, barring some unexpected "calamity."

Across the country, Jim Abbott of California Prudential Realty, who leads a five-person real estate team, said that while prices have slipped up to 15 percent to 20 percent for some downtown units, other units "have sold for more than they did a year and a half ago -- it depends on the product."

Some small units, among them converted apartment-to-condo units are slow to sell, he said. There isn't much demand for units ranging from 500 square feet to 700 square feet, he said.

An Anderson Forecast for the San Diego market, prepared by a University of California, Los Angeles, center, calls for "less building, weak sales volumes and flat to slightly falling home prices through 2007, with some improvements starting in mid-2008." The forecast anticipates median prices for all homes and condos to fall to about $478,500 by fourth-quarter 2008, which is down about 2.1 percent compared to the median price in fourth-quarter 2006.

The buyers in the San Diego market these days appear to be buying for the long haul, Abbott said, as the investors and speculators are no longer a factor. "I don't see any investors in the marketplace at the moment and I don't think we will until it's proven that prices are starting to rise," he said.

Buyers do have some fears, he said, about the declining market. "What we always point out is that the best deal on a house is the one you should have bought five years ago, and that's almost always true. A lot of people are trying to time their purchase perfectly. A lot of that is interest-rate dependent," he said.

Short-sale properties are available in the San Diego market, though these properties can raise a red flag because lenders can be overwhelmed by the volume of these sales, and this can lead to long processing times, Abbott said.

Median year-over-year price change for fourth-quarter 2006 City Case-Shiller* NAR (existing homes) OFHEO Zindex (Zillow) DataQuick (new and existing)**             National 0.4 -2.7 5.9 -0.48 N/A             Atlanta 3.4 -2 4.28 N/A N/A Boston -4.52 -2.4 0.08 -5.95 N/A Charlotte, N.C. 6.91 8 9.09 13.3 N/A Chicago 3.77 0.9 6.3 2.31 1.2 Cleveland -1.94 -3.5 -0.3 -0.46 N/A Dallas 1.62 -3.9 4.11 N/A N/A Denver 0.16 -0.8 1.32 -0.63 -1.3 Detroit -4.67 -1 -1.5 N/A N/A Las Vegas 1.74 -0.8 5.36 0.77 6.4 Los Angeles 3.72 3.2 9.2 2.22 4.53 Miami 7.33 -6.2 15.3 2.84 12.2 Minneapolis -0.13 -1 1.96 N/A N/A New York 1.83 2.3 6.14 -0.9 N/A Phoenix 2.04 -2.3 9.04 -0.05 1.5 Portland, Ore. 11.57 11.2 13.45 11.39 10.6 San Diego -3.27 -4.5 -0.18 -5.47 N/A San Francisco -0.77 2 2.06 -0.96 1.13 Seattle 13.05 11.3 14.5 12.87 11.3 Tampa 4.21 3 11.42 6.45 N/A Washington, D.C. -1.77 -2.6 6.31 N/A N/A *based on average monthly price change for 3 mos. of the quarter **based on data for metro area's central county

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Send tips or a Letter to the Editor to glenn@inman.com, or call (510) 658-9252, ext. 137.

Inflation risk still troubles Fed

Thursday, May 17, 2007

Inman News

Mortgage rates gained this week on the Federal Reserve's belief that inflation could still pose a problem, Freddie Mac and Bankrate.com reported today.

In Freddie Mac's survey, the 30-year fixed-rate mortgage climbed to an average 6.21 percent from last week's 6.15 percent, while the 15-year fixed-rate mortgage rose from 5.87 percent to 5.92 percent. Points, which are fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.4 on the 30- and 15-year loans.

Borrowing costs on adjustable-rate mortgages (ARMs) were mixed, as the five-year Treasury-indexed ARM grew from 5.89 percent to 5.92 percent while the one-year ARM held at 5.48 percent. Points on these loans averaged 0.6 and 0.7, respectively.

"Mortgage rates inched up this week following the Federal Open Market Committee statement reiterating that the predominant concern remains the risk that inflation will fail to moderate as expected," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "However, as long as core inflation continues to trend downward and economic growth remains subpar it is unlikely that we will see any big movement in mortgage rates."

"Recent indicators point to continued weakness in the housing market, with the bottom of the cycle still months away. There are signs that house sales are stabilizing and excess inventories beginning to come under control, but building permits continue to be weak and condo sales are soft in a number of markets."

Nothaft said the only good news from the housing market came from the National Association of Realtors, which reported first-quarter existing-home sales were up 2.4 percent from the final quarter of 2006, and the Mortgage Bankers Association, which reported the "average pace of mortgage applications for home purchase over the first two weeks in May was the strongest since January 2006."

In Bankrate.com's survey, mortgage rates increased slightly this week, with the average 30-year fixed mortgage rate rising to 6.32 percent -- the same point where it rested on Valentine's Day. Discount and origination points on the 30-year loans averaged 0.26.

The average 15-year fixed-rate mortgage, popular for refinancing, rose to 6.05 percent, according to Bankrate.com. With larger loans, the average jumbo 30-year fixed rate nudged higher to 6.56 percent. On adjustable-rate mortgages, the average 5/1 ARM jumped up to 6.24 percent, while the average one-year ARM held at 6.05 percent.

Bankrate.com reported that over the last three months mortgage rates have remained in a very narrow range, owing to a static interest-rate environment. Even the release of several inflation indicators, plus the latest data on retail sales, the housing market and a Federal Open Market Committee meeting in the past seven days, barely fazed mortgage rates and Treasury yields.

Fixed mortgage rates are notably lower than last summer when the Fed last raised interest rates, Bankrate.com reported. At the time, the average 30-year fixed mortgage rate peaked at 6.93 percent, and a $165,000 loan carried a monthly payment of $1,090. With the average 30-year fixed rate now 6.32 percent, the same loan originated today would carry a monthly payment of $1,023.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York - 6.3 percent with 0.08 point

Los Angeles - 6.35 percent with 0.43 point

Chicago - 6.41 percent with 0.04 point

San Francisco - 6.25 percent with 0.51 point

Philadelphia - 6.36 percent with 0.15 point

Detroit - 6.37 percent with 0.03 point

Boston - 6.4 percent with 0.03 point

Houston - 6.28 percent with 0.44 point

Dallas - 6.22 percent with 0.47 point

Washington, D.C. - 6.26 percent with 0.43 point

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